Tax Law Professor Paul Caron cites a New York Times op-ed, "Tax Cuts Might Accomplish What Spending Hasn’t", by N. Gregory Mankiw (Harvard University, Department of Economics).
It is the eternal struggle between the supporters of John Maynard Keynes and the supporters of tax cuts:
Keynesian theory says that government spending is more potent than tax policy for jump-starting a stalled economy. The report in January put numbers to this conclusion. It says that an extra dollar of government spending raises GDP by $1.57, while a dollar of tax cuts raises GDP by only 99 cents. The implication is that if we are going to increase the budget deficit to promote growth and jobs, it is better to spend more than tax less.I am probably pushing fair use here, so I will leave it at that and leave the blog post and the article to you to read and to think about and to draw conclusions from.
But various recent studies suggest that conventional wisdom is backward.
One piece of evidence comes from Christina D. Romer, the chairwoman of the president’s Council of Economic Advisers. In work with her husband, David H. Romer, written at the University of California, Berkeley, just months before she took her current job, Ms. Romer found that tax policy has a powerful influence on economic activity. According to the Romers, each dollar of tax cuts has historically raised G.D.P. by about $3 — three times the figure used in the administration report. That is also far greater than most estimates of the effects of government spending.
Regards — Cliff
PS: Hit tip to Instapundit